I don’t know about you, but I’m a bit freaked out about the stock market. I know I’m relatively young, have a lot of time to recover, and that I don’t have a million dollars the market, but it’s very uneasy to think about the security of my invested assets in such a volatile market.

The day that I wrote this the S&P 500 index went up and downnearly 10%. To say that is volatile is an understatement.

You know what everyone says:If you are in the market for the “long-term” you don’t have to worry about the short-term volatility or losses.

I guess that sort of makes sense doesn’t it? Or does it?

This is a new very volatile world and I wrote this newsletter to give you something to think about and determine if buying and holding stocks right now is a good idea even when looking at the long term?

Ask yourself this question: If the stock market goes up and down and up and down over a ten year period with the average rate of return equalling ZERO, will the account balance be the same at the end of the ten-year period?

Put another way, if you invested $100,000 in the S&P 500 index where the index went up 10% the first year, then down 10%, then up 10%, then down 10%, and if this cycle continued for 10 years with the average rate of return equalling ZERO, would your initial investment still be $100,000?

The answer is NO!

Look at the following chart where I assumed a very volatile market that goes up and down 10% every other year and after ten-years the average return is ZERO.You’ll notice that the account value is $95,438.

Never go backwards and lock in gains

Most of you know that I’m a big fan of Fixed Indexed Annuities (FIAs) to hedge a client’s risk in the market and to earn decent returns when the stock market does well.FIAs are not a cure all. Not every penny of someone’s money should be in them, but as an asset allocation model, the older you get the more money you should have in a wealth building tool that will not go backwards.

What if the $100,000 invested in the above example instead went into FIAs?If I make a very conservative assumption that over time the cap on returns will be 8% annually, look at the results.

Why did the FIA end up with an account balance of $146,933 instead of $95,099?Simple, in down years the FIA returned ZERO instead of -10% and in up years it returned 8%.

Are these examples real world?Prior to 1998 you would have said no way?Are these examples real world?Who knows, they could be. The question of the day is: are you doing everything you can to help educate and protect your client’s money in this uncertain world.

It’s one thing to have a conversation with your client where they are upset they only earned 8% when the market was up 10%+, it’s another to have one with them when their money earned ZERO when the market was down 10%.The first one I don’t mind having, the second one is really painful (especially if your client is over the age of 60-65and close to or in retirement).

-20%

Just in case you are curious, if the market has wild swing of 20% every other year (up and down), the account balance at the end of 10-years would be $81,537 and the FIA account balance would remain at $146,933.

ConclusionI’m not sure if the days of “buy and hold” have come and gone as a tried and true way of growing your wealth. That may or may not be the case. What I know is that it’s time to have a discussion with your clients to help them understand ALL the various options to grow and protect their wealth and I think that conversation should include the information discussed in this newsletter.